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A Tesla employee assembles an electric vehicle at the company's factory in Fremont, Calif. In July, mining company BHP Group signed a deal with Tesla to secure its nickel supply for making EV batteries. |
As demand for electric vehicles accelerates worldwide, some automakers have vied to strike supply deals with miners to secure access to EV battery metals, such as lithium, nickel and cobalt. California-based electric vehicle manufacturer Tesla Inc., one of the most outspoken proponents of increasing the availability of sustainably produced nickel for its batteries, recently made the decision to go directly to the source.
Mining company BHP Group announced July 22 that it signed a deal with Tesla to supply nickel from its Nickel West mine in Australia. The agreement came on the heels of Tesla's decision in March to source some of the nickel for its batteries from the New Caledonia-based mine Goro and list itself as a technical and industrial partner of the mine.
The agreement is the most prominent in a wave of new agreements in recent months as companies attempt to prepare for an electrified future by gaining more control of supply chains upstream and vertically integrating.
Accessing enough battery-grade nickel, in particular, could be a challenge for car companies in the future due to the surge in demand for the metal and the underinvestment in new development.
"Clearly, Tesla has taken the view that it is not prepared to rely exclusively on the battery companies, the chemical companies or the cell manufacturers to source the raw materials it needs for its supply chain," said Sam Riggall, CEO of Australia-based Sunrise Energy Metals Ltd., a company building a battery metals complex in New South Wales.
"It has taken that responsibility on itself, and we expect that trend to accelerate across the supply chain."
'First of its kind'
Other U.S. car companies have elected to team up with midstream suppliers to source high-nickel batteries for EV manufacturing.
Ford Motor Co. announced in May that it planned to launch a joint venture with South Korean battery supplier SK Innovation Co. Ltd. to build battery cells in the U.S., including the mass production of the Nickel 9 battery for Ford's electric F-150 Lightning truck. In 2019, General Motors announced that it would collaborate with battery supplier LG Chem Ltd. to manufacture its EVs.
Yet Tesla's recent decision to leap over midstream suppliers and go directly to miners for battery-grade nickel could be a sign of what's to come for the metal's supply chain.
Tesla, which did not respond to requests for comments for this story, has agreements already in place with battery companies but has long been on the hunt for its own nickel sources.
"Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way," CEO Elon Musk said during a second-quarter earnings call in 2020.
Later in a post on Twitter, Musk called nickel the "biggest concern for scaling lithium-ion cell production."
Benchmark Mineral Intelligence estimated that the BHP-Tesla contract could involve upward of 18,000 tonnes of nickel annually, beginning next year. Benchmark said the agreement is "the first public deal of its kind for a major Western automaker."
Demand for nickel from the battery sector could climb from an estimated 184,000 tonnes in 2021 to approximately 1.7 million tonnes by 2030, according to a Benchmark Mineral Intelligence forecast published in July.
"Nickel is key," Riggall added. "There's going to be a significant crunch in supply."
Nickel-rich batteries
The nickel market has already been influenced by the rise in EV adoption rates, S&P Global Market Intelligence commodity analyst Jason Sappor said.
"As countries are putting policies in place to lower emissions, more electric vehicles are being produced," Sappor said. "That is going to benefit primary nickel demand, and we expect to see an increase in battery-grade nickel demand too."
Market Intelligence analysts forecast that annual nickel consumption from passenger plug-in EVs could reach 453,000 tonnes by 2025, up from 101,000 tonnes consumed in 2020.
London Metal Exchange nickel stocks tumbled 6.7% month over month, reaching 219,180 tonnes July 23, according to a Market Intelligence report. The decline was attributed to robust demand coming from China for nickel briquettes, a material used to produce the battery-grade nickel sulfate needed in certain types of EV batteries. Analysts predict that Chinese primary nickel demand in passenger plug-in EV batteries will increase by 84% between 2020 and 2021.
LME nickel stock drawdowns could continue on the back of accelerating EV sales and the manufacturing of more nickel-manganese-cobalt, or NMC, cathodes, a type of battery chemistry particularly suited for electric SUVs and trucks.
NMC cathodes currently dominate the passenger plug-in EV cathode market. Last year, NMC cathodes made up 68.9% of the market, according to Market Intelligence data. A shift toward cathodes with nickel-rich chemistries could lead to battery-grade nickel supply constraints in the near future, some analysts predict.
"The EV story is already playing out, and it is going to have a long-term impact on the nickel market," Sappor said.
Overhauling traditional transportation supply chains to accommodate the shift to EVs will be no small feat, and locking down deals with miners to access raw materials is only the beginning, according to Riggall. Automakers' ability to control raw material supply and pricing will determine the winners and losers in the electric vehicle market.
"The decades-old supply chain models that the automotive industry has developed just won't work with electric vehicles," Riggall said.